ABS
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Waivers required
WBS covenant breaches eyed
The probability of covenant breaches within UK whole business securitisations has increased, due to coronavirus-related restrictions on businesses. However, covenant breaches do not necessarily result in negative rating actions.
There are multiple types of covenants and they provide protection for bondholders in different ways. George Abbatt, director, global infrastructure and project finance at Fitch, says: “One example is debt service .......
News 15 May 2020
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Unknown unknowns
Covid-19 modelling challenges persist
Banks are running simulations in an effort to address the credit risk modelling challenges of the coronavirus crisis (SCI 8 April). However, this is yet to clarify whether lenders can use both through-the-cycle (TTC) and point-in-time (PIT) modelling or merely point in time.
According to Martin Zorn, president and coo at Kamakura: “Stochastic modelling and stress testing is .......
News Analysis 15 May 2020
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SRTs unlocked
BMO launches capital relief trade
Bank of Montreal has finalised a US$132m five-year financial guarantee dubbed Manitoulin Muskoka Series 2020-1. The trade is the first transaction to close in the SRT space following the coronavirus outbreak.
The portfolio is believed to reference mid-market corporate loans, which wouldn’t be the first time BMO ventured into the asset class, after expanding its exposure to it .......
News 15 May 2020
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Auto ABS boost
European ABS market update
Yesterday’s print of BMW Bank’s latest auto loan ABS marks a significant step in the reopening of the primary European securitisation market. The STS transaction was placed with 33 accounts, with the final spread tightening to one-month Euribor plus 40bp at the senior level.
One European ABS trader suggests that there is a lot of confidence that Bavarian Sky German .......
Market Reports 15 May 2020
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Questionable idea?
Central bad bank proposal raises concerns
The ECB is exploring the idea of a bad bank to relieve European bank balance sheets following expected asset-quality deterioration, due to the coronavirus fallout. Nevertheless, such a proposal would have to explain how purchase prices can be aligned with net book values, with some suggesting the move may be premature at this point.
Indeed, any Europe-wide bad bank proposal .......
News Analysis 14 May 2020
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Liquidity support
Amendments mitigate forbearance impact
A number of UK securitisation issuers are enhancing their deals to mitigate the negative impact on revenue of coronavirus-induced payment holidays. Among the first-movers to support public transactions were Santander and Volkswagen Financial Services UK.
Notably, Santander amended the transaction documents for its master trust issuances - Holmes Master Issuer series 2016-1, 2017-1, 2018-1 and 2018-2 and Fosse .......
News Analysis 14 May 2020
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Portfolio resilience
Technology-driven investment gaining traction
Pagaya has expanded to the US West Coast, beefing up its origination group. At the same time, the fintech firm is seeking opportunities in new asset classes and new partnerships.
As part of its expansion, Pagaya has appointed Jason Hass as svp of originations and Mike Cannatella as vp of originations, in Phoenix and Los Angeles respectively. Hass will oversee .......
News 14 May 2020
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TALF CLO rules clarified
Sector developments and company hires
TALF CLO rules clarified
Market Moves 13 May 2020
The US Federal Reserve has clarified its CLO eligibility rules for TALF. It defines its stipulation that all or substantially all of the leveraged loans underlying CLOs must have been “newly issued” as those originated or refinanced on or after 1 January 2019. The Fed also announced additional CLO portfolio requirements: maximum second lien loan concentration .......
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Positive outlook
Survey indicates distressed debt pick-up
A new survey of private markets suggests that a pick-up in distressed debt activity is likely over the medium term due to the Coronavirus crisis. However, live deals are being renegotiated or postponed, with servicers adopting more consensual resolution strategies.
Private market participants are already finetuning their outlook and strategies for the next 18 to 24 months, even .......
News 13 May 2020
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Risk transfer round-up - 13 May
CRT sector developments and deal news
Bank of Montreal is rumoured to be prepping a corporate loan capital relief trade for 3Q20. The lender’s last risk transfer trade was completed in January and was called Manitoulin Algonquin 2020-1 (see SCI’s capital relief trades database).
....... News 13 May 2020
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SFSF investments disclosed
Sector developments and company hires
SFSF investments disclosed
Market Moves 12 May 2020
The AOFM has disclosed the recent investments it has made under the Structured Finance Support Fund. In the primary market, the fund was the sole third-party investor in the A2 tranches of FirstMac 2020-1 (it also invested in the A1 through D tranches) and Liberty Series 2020-1 on 27 March and 8 May respectively. It has also .......
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Residual value buffer provided
Sector developments and company hires
Residual value buffer provided
Market Moves 11 May 2020
Volkswagen Financial Services UK will calculate a collateral residual value buffer to be made available to its UK auto ABS issuers in respect of the monthly period in which a payment holiday with a term extension is granted for a purchased receivable. The collateral RV buffer will be £300 for each purchased receivable in respect of which .......
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Drafting issues
Assia Damianova, special counsel at Cadwalader, Wickersham &...
CRTs typically consist of a credit transfer instrument entered into between the credit institution and an SPV, with notes issued by the SPV to investors, the payments in respect of which are linked to payments on the credit transfer instrument. Most CRTs use a financial guarantee (“FG”) as the credit transfer instrument (instead of a CDS that requires daily .......
Talking Point 11 May 2020
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EC decision awaited
Preferential capital treatment mooted for STS synthetics
The EBA’s framework for STS synthetic securitisations (SCI 6 May) is broadly in line with those of the discussion paper that was published in September 2019 (SCI 25 September 2019). Notably, the authority seems to endorse preferential capital treatment for such transactions, subject to certain conditions - albeit the final decision on this now rests with the .......
News Analysis 7 May 2020
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CRM tool
CBILS guarantees eligible for CRR recognition
The UK PRA published at the end of April a statement clarifying whether Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) guarantees are eligible for recognition as unfunded credit risk mitigation (CRM) under the CRR. The move is seen as a helpful step towards motivating banks to lend under the schemes.
“It’s a tough .......
News 7 May 2020
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Risk transfer round-up - 7 May
CRT sector developments and deal news
BBVA is rumoured to be readying a capital relief trade for 2Q20. The lender has completed a total of three risk transfer trades since 2017 and all of them have been in conjunction with the EIF (see SCI’s capital relief trades database).
....... News 7 May 2020
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NPA opportunities
Global investors target Indian distressed debt
The coronavirus fallout is set to severely impact credit delivery and asset quality in India, with over US$30.5bn of loans expected to become stressed over the next 12 months. Securitisation could help the banking sector address its non-performing asset (NPA) burden, especially if the Indian government further liberalises the country’s External Commercial Borrowing (ECB) regime.
Nathan Menon, senior .......
News Analysis 7 May 2020
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STS synthetics proposals published
Sector developments and company hires
STS synthetics proposals published
Market Moves 6 May 2020
The EBA has published its proposals for developing an STS framework for synthetic balance-sheet securitisations, which includes the criteria to be considered when labelling a transaction as ‘STS' and provides the pros and cons of a potentially differentiated capital treatment for this type of securitisation. Among the proposed STS criteria are requirements on simplicity, standardisation and transparency .......
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Ladder locks in financing
Sector developments and company hires
Ladder locks in financing
Market Moves 5 May 2020
Ladder Capital has entered into a strategic financing arrangement with Koch Real Estate Investments, under which Koch will provide the company with approximately US$206.4m in senior secured financing to fund transitional and land loans. As part of the strategic financing agreement, Koch has the right to make a US$32m equity investment in the Ladder at any time .......
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Romanian SRT inked
Uncapped guarantee completed
The EIF and nine Romanian banks have completed an uncapped guarantee agreement from the SIUGI programme that covers 60% of a €1.368bn portfolio of Romanian SME credit rights. The banks originating the SME credit rights under this initiative are Banca Transilvania, Banca Comercial Romana, BRD – Group Societe Generale, ING Romania, ProCredit, Raiffeisen Bank Romania, Libra Internet Bank, UniCredit .......
News 5 May 2020
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Modifications up
MPL impairments bucking the trend
US marketplace loan payment impairment rates have increased amid the coronavirus fallout but remain below the changes in unemployment figures. Recent dv01 performance data also shows that modifications comprise over 70% of all payment impairments, thereby limiting near-term defaults.
Indeed, new modifications outnumber new delinquencies and dv01 expects this trend to continue. The majority of modifications are a .......
News 5 May 2020